Singapore inflation surprisingly rose 4.3% in December

Just when everyone thinks it would ease for good.

The headline number surprised once again by posting a 4.3% YoY rise in December. DBS notes: This is up from 3.6% in November although frankly speaking, the previous month’s number is largely arithmetic and nothing to shout about.

Here's more from DBS:

The point is: domestic inflationary pressure is still exceptionally high. Effects of the high COE premiums and rentals have been manifested in the inflation reading. Both transport and housing CPI indexes crept higher in the month. Note that the December number was also exacerbated by the fact that COE premiums hit a new high of SGD 97,000 (open category). That by itself represents a 30-35% increase compared to the previous year. Private road transport accounts for 11.7% of the total weights in the CPI basket.

Moreover, the labour market has been extremely tight. We’ve flagged the inflationary risk of foreign labour policy tightening as earlier as March 2010. Right now, rising labour cost is probably the number one driver of inflation in Singapore. The risk is that inflation expectation has probably been raised significantly in recent years due to the persistently higher than usual inflation. Workers will surely demand higher wages to compensate for the loss in their real income. This thus paves the way for the risk of a wage-price spiral.

Inflation will run sideways, hovering around the 4% mark throughout the year. The factors that have been keeping inflation at such higher than normal level will continue to fuel the pressures. With the inflation still higher than normal and the growth outlook expected to improve, the Monetary Authority of Singapore (MAS) will most likely maintain its current SGD NEER appreciation policy stance in the upcoming review in April.

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